Arcep speaks

Analysys Conference / Mobility Futures : Competing visions of a 3G World / London – 29th of November 2000 / Speech by Jean-Michel Hubert, Chairman of the French Telecommunications Regulatory Authority (ART)

Ladies and Gentlemen,

Thank you for your invitation to speak here today. I am delighted to have this opportunity to outline the position of France's telecommunications regulator on UMTS. This is an issue of vital importance for the future of the European telecommunications market.

I would also like to pay tribute to my colleague, David Edmonds, with whom we are working closely, notably within the framework of the IRG. Oftel is respected as a pioneer and a point of reference by all of Europe's regulators. We are taking concerted action and I appreciate the mutual support we implement in many areas, unbundling being a prime example, as you may guess.

In my talk today, I intend to focus mainly on the selection of UMTS operators in France and therefore on the so-called "beauty contest" procedure. Naturally, I am well aware of the faith that the UK authorities have placed in the auction process. Nevertheless, I hope you will not find it out of place or presumptuous if I explain the alternative approach that France has adopted.

David Edmonds is going to discuss the strategic role of the regulator in fostering competition, so I am not going to address that topic directly. Simply, I wish to affirm that the development of competition is one of ART's fundamental objectives and that our work has already contributed to a genuine opening-up of the French market.

All in all, more than a hundred operators, both fixed and mobile, have been granted licences in France. On the long-distance segment, France Télécom's competitors had market share of thirty per cent at the end of last September and the number of subscribers to carrier selection and preselection services broke the four million barrier before summer.

In 1999, the market expanded by more than twelve per cent in nominal terms. It continued to grow in the first half of 2000, with mobile telephony and the Internet again acting as the driving forces: In first-half 2000, the volume of mobile calls as well as the volume of Internet access calls roughly doubled when compared with the previous year’s figures.

I. The Beauty contest – An approach already adopted in France for the wireless local loop

Let’s come to the beauty contest. This method has already been used successfully in France for allocating licences for the wireless local loop.

After a trial phase initiated in 1998, ART opened the operator selection process in October 1999 by opting for an approach based on a call for applications for this wireless technology.

The call for applications provided for two types of licences:


  • two national licences;


  • 52 regional licences (two per region), including overseas departments.

The selection procedure was launched at the end of last year. In all, 28 candidates submitted 218 applications.

According to the beauty contest method adopted, seven criteria were defined, the two most important being the ability to stimulate competition on the local loop and so bring benefits to users, and the scale and speed of deployment in the area concerned by the application.

We released the results of the contest on last July. Of the original 54 licences, 47 were issued. Three of the 12 selected operators withdrew their applications because they did not feel they were in a position to fulfil the associated commitments, despite having previously submitted them.

An additional call for applications was made and today there is at least one candidate for each of the licences remaining to be granted.

Nine wireless local loop operators have already received a licence and have begun deploying their network. Between 2000 and 2004, they plan to invest 2.7 billion euros and create 6,000 jobs.

In return for the allocation of licences and associated frequencies, operators pay taxes and fees in an amount equivalent to that paid by all telecommunications operators. During the 15-year licence period, total revenues from wireless local loop operators are expected to amount to 140 million euros. This figure appears to overpass the result of obviously disappointing auctions in this country.

As the example of the wireless local loop shows, the beauty contest procedure is pertinent, effective and transparent – qualities that belie the criticism levelled at it in Europe over the past two years.


  • It is pertinent because it can be used to select candidates according to objective criteria that reflect the principles of public policy.


  • It is effective because it ensures that licences are granted in a manner that is economically viable for the operators.


  • It is transparent because, in the case of the wireless local loop, we published all the documents involved in the selection process, including the memorandums relative to each criteria for each operator. This was the first time such a process had been used in such an important matter. I would like to point out that the deadline for submitting appeals has just expired. No disputes have arisen from this beauty contest.

II. UMTS: The current situation and outlook in France and Europe.

As you have probably understood, we are going to apply the same principles and methods to the allocation of UMTS licences. The selection procedure adopted in France is already underway. Candidates have until the 31st of January 2001 to submit applications. However, circumstances in Europe have changed considerably in the last twelve months, and it is in the light of these developments that I now wish to review the situation in France.

1. Principles for selecting third-generation mobile operators

In France, ART is responsible for establishing the terms and conditions for the allocation of UMTS licences and proposing them to the telecommunications minister.

In early 2000, after wide-ranging consultation with market participants, we settled on the principle of a beauty contest rather than an auction. Three reasons for this:


  • First, almost all the parties we consulted, including operators, manufacturers, experts, analysts and economists, said they were in favour of a beauty contest.


  • Second, beauty contests, unlike auctions, can be controlled by those involved, and so offer far greater visibility. We have recently had demonstrations of the importance and usefulness of this criterion.


  • Third, previous beauty contests have shown themselves to be more favourable to market development than auctions, which force candidates to be selected on the basis of financial criteria only, with other important considerations being disregarded. This is an important issue because we are dealing here with a new market that is still surrounded by uncertainties.

In view of the thoroughly unexpected results of the UK auction process, the French government asked me to look again at the number of UMTS licences to be issued, the procedures for granting licences, and the size of contributions that could be requested from operators.

ART maintained its position in favour of a beauty contest leading to the allocation of four licences. The French government has adopted the same position, with the telecommunications minister publishing ART's proposal during the summer.

At the same time, total financial contributions payable by the operators that receive licences were revised upwards to take into account the proprietary interests of the French State. Each operator will have to pay nearly five billion euros for a licence and the frequencies. Half of this amount has to be paid over two years, with the remainder payable over 13 years. This decision belonged to the government, which wanted to take two factors into account: first, the impact of the UK auction on the economic equilibrium of the European market; and second the government's analysis of how much operators are able to contribute, given that further outlays will be needed to build up a network.

As provided by law, ART will publish the results by the 31st of May 2001.

Applicants will be selected through a beauty contest on the basis of 14 selection criteria, covering technical, commercial and financial aspects. Application will be marked for each criterion and will then receive an overall mark.

The most important criteria are:


  • the scale and speed of network deployment;


  • the cogency and credibility of the project;


  • the cogency and credibility of the business plan;


  • the services offered.

The call for applications includes a number of obligations that the shortlisted operators must meet. In particular, I would like to stress:


  • the obligation to ensure area-wide coverage, defined as a percentage of the population with access to voice and data services, after two and eight years;


  • the obligation to provide a pre-determined set of services, including voice, Internet access, data transmission and user location, together with obligations of availability and service quality. One simple reason: we want real 3G services;


  • the possibility of GSM roaming for operators that do not have a second-generation network, once they have met minimum coverage requirements;


  • the obligation to share sites, for reasons of fair competition and environmental protection;

Of course, I have taken on board the two main criticisms made since the spring:


  • The limited legitimacy of the regulator’s choices, stemming from the view that the market is better placed than technocrats to ascertain what the consumer needs. To this I would answer that the system in place is a reflection of a political commitment to territorial coverage, reiterated every week by the government and parliament. In this view, the question of universal service remains a major concern for Europe.


  • The lack of transparency of the beauty contest approach. The many disputes that have arisen over the auctions held in some countries, plus the increasingly high drop-out rate, would suggest that beauty contests offer at least the same guarantee of transparency as auctions.

I remain convinced that the beauty contest approach is a balanced, transparent and reasonable procedure for selecting UMTS operators in France. In any case, I note that no operator has cited this method as a reason for not competing in France. Everyone has understood that the recent decision of Deutsche Telekom had no specific link with the French market, but was a direct consequence of previous results of auctions in the UK and in Germany.

According to economic theory, auctions are an economically efficient procedure because they reflect the price of the licences as assessed by the players themselves, and not by an outsider to the market. However, this view overlooks the fact that, in practice, some players, namely the 2G operators, have to obtain a 3G licence to remain present in the market and that the actual possibility of withdrawing — a pre-condition for auctions — does not exist in this market.

The system of European financing will be put to the test, with the result that some operators, including European majors, have decided not to compete in several countries. This partly explains why the financial markets have been correcting their overly optimistic and sometimes irrational expectations in the past few months. This also shows that appreciations of the market is made at a specific time, not on the long term. It is excessive and can be dangerous.

Simply to obtain all the UMTS licences in Europe, telecommunications operators will incur a cost of around 150 billion euros, which was still fairly difficult to predict in January 2000.

Where is Europe in all this? The different member states are divided on the methods and their financial consequences, with the result that there is no standard UMTS licence.

The differences in the total cost per capita of acquiring the UMTS licences in the main European countries. For example, this cost is 171 euros in the Netherlands, 211 euros in Italy, 330 euros in France and over 600 euros in Germany and the United Kingdom. (Switzerland : 18 euros ; Sweden : 0,005 euros). And I just mention the uncertainty related to Spanish decisions for granting new 2G licences.

France did not share the euphoria that gripped economic circles, and even the governments, in the spring, when the prices that states could charge operators appeared to have become more important than the success of a new market.

And France does not intend to yield to the concern — or the pessimism —that is being expressed now, less than six months later, at least in some countries and by some operators.

We must remain confident in the future of UMTS. But we should also bear in mind that the market will maintain a degree of freedom regarding the pace of its own development. That is its freedom and its strength, because it’s the market that will answer these questions, which are still asked: what services for which consumers and at what price?.

2. Establishing the conditions for market development

While the conditions for granting licences have a decisive impact on the structure of the market, it is important to prepare for the arrival of new mobile multimedia services. This involves certain crucial stages that will influence the speed of market development.

Our approach consists in recognising the necessary stages in the introduction of the third generation, so as to guide them dynamically without rushing them through. This explains ART’s interest in the conditions for the development of services provided through WAP and, in the near future, GPRS.

We have just published recommendations on the principles for the open, competitive development of the mobile Internet market. We have identified twelve principles relating to conditions of use and terminal configuration, visibility of services, access to the WAP gateway, cost of access to the services, cost of the services themselves and innovations in the sector.

These recommendations, based on broad-based consultation, are underpinned by the objectives of providing user information, simplicity and speed of use, neutrality of marketing procedures relating to the services and functions available, and non-discrimination towards players, particularly service providers.

The arrival of UMTS must be prepared, by establishing the conditions for the entry of all the players into this market and by giving consumers time to become familiar with the new services provided on their mobile phones.

To achieve this, our recommendations stress two objectives:


  • freedom of access to customers for all players;


  • freedom of choice and access to services for consumers.


In conclusion, I am confident about the development of UMTS in Europe. We have endeavoured to establish the conditions for introducing UMTS on the basis of a fair, clear-sighted analysis.

Thank you for your attention.

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